Observations and reflections from Tibor R. Machan, professor of business ethics and writer on general and political philosophy, now teaching at Chapman University in Orange, CA.

Tuesday, September 23, 2008

Are Air Fares Too High?

Tibor R. Machan

In genuinely free markets prices reflect the overall intersection between supply and demand, so there are no prices that are too high or too low. Such notions express personal expectations and nothing objectively true. An exorbitant price is one someone finds beyond his budget, a good deal something well within it.

In particular, if airfares were truly exorbitantly high, planes would be flying with few passengers just as few people drive Bentleys or Maseratis, both of which cost a bundle while are also widely desired. In contrast, planes are mostly filled to the brim.

As someone who flies nearly every week, all over the globe, only by purchasing tickets way before the scheduled trip do I manage to get decent seats. The flights are I take, most often between some point on the West Coast and someplace East or the Midwest, are completely booked. Indeed, I recall when back in the 60s this wasn’t true and planes flew half full, mostly. Nowadays they are full and upgrading is nearly impossible. Airlines have restricted upgrades to passengers who purchase fairly high price tickets in the first place--supersavers don’t seem to qualify.

Despite the high demand for their services, executives such as Glenn Tilton of United Airlines are urging the public to implore Congress “to take immediate action to solve our nation’s fuel crisis.” (Hemisphere Magazine, September 15-30, 2008, p. 13). He claims that “Record-high fuel prices are having a devastating impact on our economy, and the airline industry is taking drastic steps to remain competitive, including cutting flights and services, increasing fees, grounding inefficient airplanes, and laying off employees.” Yet, each but one of the six United flights I took the other week was full. American Airlines, US Airways, Southwestern, all of which I have flown recently, are no different. And on one United flight the pilot explained that the reason why we had to wait an hour and a half on the tarmac is that New York’s La Guardia Airport “is too small by 30% to handle all its flights.” So not only airlines but airports seem to regularly overbook!)

By all reasonable accounts, if airports cannot handle all their scheduled flights, especially on days the weather is perfect everywhere, they should not be trying to accommodate them and ticket prices must be too low. (Prices, in a free market, are supposed to serve to ration goods and services! When shortages develop, prices need to rise to send potential customers to some other means of transport!)

It is of course wrong for the Chairman and CEO of United Airlines to urge passengers to try to get the government to manage fuel prices. Government’s task isn’t to order the prices of goods and services but to preserve the conditions for us all to carry on peacefully as we go about our various businesses. True, this idea of how markets must function isn’t much in vogue these days when too many market agents try to get their politicians to do deals for them instead of making deals themselves. Nearly all major businesses have abandoned and betrayed the ideal of free market capitalism, both in the U. S. A. and abroad. Getting government to bail out firms that overextended themselves is now routine and politicians are only too eager to accommodate, though not without putting all kinds of conditions on their loans which then keep the firms beholden to them. And, of course, all of this is for the sake of the public interest, never for their own survival at the expense of taxpayers! No, you will never hear them admitting to wanting to rip off Peter so as to rescue Paul. Instead they are simply being public spirited. Yeah.

I am almost certain that Mr. Tilton’s advisers have told him to plead public spiritedness as he implores his customers to lobby for help from the government. (While decent selfishness has a very bad reputation, phony altruism is a favorite mantra in both business and politics!)

Just remember, most people fly because they can afford to do so! Although the absolute figures of the cost of flying look big, the portion of income it takes up is not more than it used to be before, probably less (which is why planes are so full).

Everything costs more these days in nominal terms--milk, gasoline, flights, grapes, cars, etc. But compared to what people earn now, prices aren’t rising a lot.